FINRA Investigating Bond Underwriters

August 30, 2011 by · Leave a Comment
Filed under: The Ratings System 

Unnamed agencies and underwriters are being investigated by the Financial Industry Regulatory Authority (FINRA) to see whether the firms had been entertaining rating agency executives lavishly in an attempt to influence security ratings.

Reuters quotes FINRA Chief Executive Richard Ketchum from the annual FINRA fixed-income conference in New York as saying, “We have seen examples of excessive expenses for the entertainment of issuer officials and rating agency officials, which are then charged to the municipalities’ cost of issuance, thereby reimbursing the firm out of bond proceeds.”

Mr. Ketchum explained that this is part of an ongoing effort by Wall Street to self-police and ensure new issue pricing practices and fees are fair.

Reuters reports that the FINRA investigation has also discovered payments to political action committees as a line-item in new bond underwriting expenses. False representations of payments made to dealers and others for services never performed were also uncovered.

“These issues raise serious noncompliance issues and a breach of ethics that we are continuing to investigate,” Ketchum said.

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